Savings accounts are commonly used to help separate your day-to-day spending money from the cash you're socking away for other goals, such as a vacation, a down payment on a home or your retirement. And while traditional savings accounts can serve that purpose well—keeping your money safe and accessible—they often pay relatively low interest rates that don't keep up with inflation, which can eat into the purchasing power of your hard-earned funds.
Here are a few alternatives to a regular savings account that can help grow your money faster, so you don't lose ground on the road to your financial goals.
1. High Yield Savings Accounts
Think of high yield savings accounts as the souped-up version of standard savings accounts. As the name implies, they generally pay a higher rate of interest—often many times more than regular savings accounts. Plus, they usually come with low (or no) monthly fees, they allow you to withdraw your cash at any time without penalty and your deposits at member banks (up to $250,000) are protected by the Federal Deposit Insurance Corporation (FDIC).
While a regular savings account might pay only a half of a percent in interest or less, Synchrony Bank's high yield savings account, for example, offers a competitive interest rate and has no minimum balance requirements or monthly fees.
2. Money Market Accounts
Money market accounts are like a mix between a savings account and a checking account. They offer moderately higher interest rates than traditional savings accounts, you can withdraw your money at any time and you get check-writing privileges. As such, money market accounts can be a good option for maximizing interest income on a pool of savings that you still need to draw on from time to time for payments by check.
Synchrony's money market account, for instance, offers a competitive interest rate on deposits, with no monthly fees and no minimum balance, and it's FDIC insured.
3. Certificates of Deposit (CDs)
Certificates of deposit, or CDs, require you to lock in your savings for a specific term, ranging from a few months to several years. In return, you get a fixed interest rate that is generally higher than on other types of savings accounts.
Of course, fixed rates and terms can be a double-edged sword: If interest rates rise during the term, you could lose out on potential earnings; and if you need to withdraw your funds before the CD term is up, you will likely face a significant penalty.
That's why Synchrony offers three types of CDs to best meet savers' needs:
- • Regular CD: Those who are certain they won't need to access their funds before the end of the term might choose the regular Synchrony CD, which generally pays the highest annual percentage yield (APY) but comes with early withdrawal penalties.
- • No-penalty CD: For savers who are unsure whether they might need to withdraw early, there's the Synchrony no-penalty CD, which guarantees a slightly lower (but still higher than average) fixed rate of interest for 11 months, and lets you withdraw the full amount any time after the first 6 days of funding of the account.
- • Bump-up CD: Those with a fear of missing out on future interest rate increases might opt for the Synchrony bump-up CD, which allows a one-time adjustment to a higher APY if rates go up within the 24-month term.
4. Investment Accounts
Investment accounts offer an alternative to traditional savings accounts for those willing to take on some level of risk. They let you invest in various assets, including stocks and bonds, potentially earning higher returns than what traditional savings accounts can offer.
It's important to remember that the value of such investments can fluctuate, and there's no guaranteed return or FDIC protection. However, if you plan to leave your money invested for the long term and can weather the ups and downs of the market, investment accounts can provide an opportunity to potentially grow your savings more significantly over time.
5. Peer-to-peer Lending
With peer-to-peer (P2P) lending, you loan your savings to individuals or small businesses through online lending platforms, and the borrowers pay you back with interest. The interest rates may potentially be higher than what you could earn on a traditional savings account, but there's also more risk—if the borrowers default on their loans, you won't get your money back.
Tips to Choose a Savings Account
Before deciding which savings product is best for you, be sure to shop around, keeping the following factors in mind:
- • Interest rates: Look for the highest rate offered on comparable products, since higher rates will grow your money faster.
- • Fees and minimum deposits: Fees can cut into your savings, so make sure you understand what fees or penalties apply. Similarly, check if a minimum deposit is required for you to get the interest rate being offered.
- • Online banking options: The convenience of online access to your account makes it easy to manage your funds and monitor your progress.
- • Risk level: Some options are safer than others, so it's important to consider how much risk you're comfortable with. High yield savings accounts and money market accounts are recognized for their low risk, while CDs present a low to moderate risk. Investment accounts, P2P lending and other investments involve higher risk, but provide the potential for greater returns.
Explore Your Savings Options
While traditional savings accounts have their merits, options are available to make your money work harder. High yield savings accounts, money market accounts, CDs and investment accounts can all grow your savings faster—the choice ultimately depends on your financial goals and risk-comfort level. Remember to consider factors like interest rates, fees, minimum balance requirements and online account access when choosing a savings product.
Find out more about Synchrony Bank's alternatives to traditional savings accounts:
•High Yield Savings Accounts
• Money Market Accounts
•Certificates of Deposit (CDs)
Tamar Satov is a freelance journalist based in Toronto, Canada. Her work has appeared in The Globe and Mail, Today's Parent, BNN Bloomberg, MoneySense, Canadian Living and others.
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